Standex International Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended June 30, 2020. The filing also reports fourth-quarter results. Unless noted, financial figures are in U.S. dollars; amounts are in millions. Fiscal 2020 and 2019 continuing-operations results reflect the reclassification of Refrigerated Solutions Group (RSG) as discontinued operations.
Business context and reporting period
Standex is a diversified industrial manufacturer organized into five reportable segments: Electronics, Engraving, Scientific, Engineering Technologies, and Specialty Solutions. It emphasizes customized products and customer collaboration across industrial, medical, aerospace, automotive, energy, and other markets. In April 2020, Standex completed the sale of RSG, consistent with its strategy to focus on businesses with higher growth and margin profiles.
Financial performance and liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Continuing-operations net sales | $604.5 | $639.9 | Down 5.5% |
| Gross profit / margin | $215.5 / 35.6% | $234.7 / 36.7% | Margin down 1.1 percentage points |
| Operating income / margin | $60.5 / 10.0% | $79.5 / 12.4% | Down 23.8%; margin down 2.4 points |
| Continuing-operations income | $41.0 | $48.3 | Down 15.1% |
| Net income, including discontinued operations | $20.2 | $67.9 | Down 70.3% |
| Diluted EPS, continuing operations / total | $3.31 / $1.63 | $3.83 / $5.38 | Total EPS reflects RSG disposal loss |
| Cash provided by continuing operating activities | $54.7 | $72.9 | Down $18.3 |
Organic sales declined $40.9 million; acquisitions added $11.6 million, while foreign exchange reduced sales by $6.1 million. Management attributed broad organic declines primarily to the pandemic-related slowdown. SG&A was $148.5 million, or 24.6% of sales, versus $150.3 million, or 23.5%, a year earlier. Interest expense declined to $7.5 million from $10.8 million; the effective interest rate was 2.59%, compared with 3.88%.
At June 30, 2020, cash was $118.8 million, total funded debt was $200.0 million, and net debt was $80.3 million, down from $104.5 million. Stockholders’ equity was $461.6 million. The company reported $203.6 million of additional borrowing capacity under its $500 million revolving facility, subject to facility terms. Its leverage covenant ratio was 1.47:1 against a maximum of 3.5:1; interest coverage was 9.09:1 against a minimum of 2.75:1. Cash provided by continuing operations was $54.7 million; capital expenditures were $21.5 million in the cash-flow statement. Dividends paid were $10.6 million and share repurchases were $10.4 million.
Quarterly consolidated results weakened sharply in Q4: sales were $142.3 million versus $209.2 million in Q4 FY2019; gross profit was $46.6 million versus $70.1 million; net income was $1.8 million versus $12.4 million; and diluted EPS was $0.15 versus $0.99.
Material changes and unusual items
- RSG divestiture: Sold for $10.6 million in cash, subject to adjustments and transaction costs. The sale generated a reported pretax loss of approximately $20.0 million, with $1.9 million of transaction fees; discontinued operations recorded a net loss of $20.8 million for FY2020. A $7.7 million goodwill impairment was recorded in discontinued operations before sale.
- Restructuring and acquisition costs: FY2020 restructuring costs were $4.7 million, up from $1.3 million. Acquisition-related expenses were $1.8 million, down from $3.1 million. Management cited facility rationalization, workforce actions, and pandemic-related cost reductions.
- Segment results: Engineering Technologies operating income rose 25.6% to $14.0 million despite sales down 1.2%. Scientific operating income was nearly flat at $13.7 million. Electronics operating income fell 27.8% to $29.7 million; Engraving fell 14.6% to $20.5 million; and Specialty Solutions fell 2.4% to $18.5 million.
- Cash and capital allocation: Operating cash flow from continuing operations fell to $54.7 million, with working-capital uses cited by management. The balance sheet reports $118.8 million cash and $199.2 million long-term debt, net of issuance costs.
- Subsequent acquisition: On July 15, 2020, Standex acquired Renco Electronics for approximately $28.0 million in cash, plus a three-year earnout. Renco is expected to join Electronics in FY2021.
Outlook, management commentary, and risks
Management said the pandemic reduced customer orders and backlog, while most facilities remained operational and shutdowns were limited. Backlog realizable within one year fell 16.8% to $152.3 million. The company implemented spending reductions, furloughs, and workforce actions and said further measures could be taken as conditions warrant. Management expected gross margins to improve in FY2021 as cost reductions took effect, but anticipated continued uncertainty and did not provide consolidated revenue or earnings guidance.
Segment outlook was mixed: Engraving expected sales growth from automotive launches and expanded offerings; Scientific anticipated stronger pharmaceutical demand, partly offset by weaker institutional markets; Engineering Technologies expected declines in aviation, energy, and space, with defense growth; and Specialty Solutions anticipated lower volume in the first half of FY2021. The company forecast FY2021 capital spending of $28–$30 million and approximately $2.6 million of additional restructuring costs. It expected to contribute about $10 million to defined-benefit plans in FY2021; certain U.S. pension contributions were deferred under the CARES Act.
Key risks include the duration and severity of COVID-19 and its impact on customer demand, supply chains and collections; cyclical end markets; raw-material costs and supply availability; tariffs; foreign-exchange and repatriation constraints; execution of restructuring and acquisition plans; goodwill impairment; pension funding; legal and environmental contingencies; cybersecurity and privacy regulation; and compliance with credit-facility covenants. Management said it was in compliance with covenants and believed liquidity and financing access were adequate. The independent auditor issued unqualified opinions on the financial statements and internal control; identified critical audit matters included over-time revenue estimates and goodwill impairment assessments.
Important facts for investors to verify
- Whether the pandemic’s impact on demand, backlog, margins, and customer payments persisted or worsened after June 30, 2020.
- Whether FY2021 margin recovery, cost savings, restructuring actions, and segment-level outlooks were realized.
- The final accounting and cash proceeds from the RSG sale, including post-closing adjustments, transaction costs, and any retained liabilities.
- Renco’s final purchase accounting, earnout terms, integration costs, and contribution to Electronics results.
- Cash conversion and working-capital trends, borrowing capacity and covenant headroom, and the timing of foreign cash repatriation and pension contributions.
- Potential future goodwill impairment, particularly given the sensitivity of valuations to forecasts and discount-rate assumptions.